Good Golly, Miss Moly
I mean Moriarty)
Copper for the craftsman cunning in his trade.
"Good!" said the Baron, sitting in his hall
But iron - cold iron is the master of them all.
For as long as I can remember there has been a very well-known silver cheerleader calling for silver to rocket to between $50 to $100 an ounce. It's as if there is some permanent shortage of silver and for some reason known only to him, no one will ever mine it again, so it's going to the moon. But I can't remember him ever saying anything about all the other commodities out there which might go up. What significance is $100 silver if gasoline is $200 a gallon and a loaf of bread costs $50. He never ever mentions what is going to happen to the price of other commodities when the Fed finally destroys the dollar and we have transferred our entire manufacturing base overseas.
So when I got
an email on Friday I thought about him. The email commented about
other precious metals. In the last year "the price of zinc
is 31% higher, copper is up 45%, lead is up by 76%, molybdenum
is up 200%, gold is up 12% and coal is ahead by 16%."
80% of moly goes to harden steel and to produce
stainless steel. And while moly in its native state is a flaky,
soft metal, it takes over 4700 degrees F to melt, compared to
2700 degrees for iron. Another 20% goes into speciality chemical
applications such as lubricants for oil drilling and refinery
It's a truism
in the mining business that all mines go through four or five
owners before being developed. Adanac's Atlin moly property probably
has them all beat. Placer gold was found back in 1898 at the
mouth of Ruby Creek where it runs into magnificent Atlin Lake.
As the miners worked the entire area looking for minerals, molybdenum
was found on the surface in 1905 at the head waters of Ruby Creek.
But moly had only been discovered in 1878 and there was little
demand at the turn of the new century. As time went by, new uses
were found for moly and demand increased. But moly is often found
in conjunction with copper and 76% of moly is produced as a byproduct
of copper mining. As the price of copper goes up, we can expect
more moly to come on the market.
In 1978 and
1980, the new owners, Placer Dome, conducted both a scoping study
and a stage II feasibility study. Placer only owned 70% and still
faced the 3.5% NSR. They concluded on the basis of 212 drill
holes and about 32,000 meters of drilling they could process
14,000 tons of material a day and have a payback of 14.1% with
a moly price of $6.75 and the dollar at $.90. In the end, Placer
Dome walked as moly dropped again.
That isn't going to last for long. The longer the price of moly stays above $15 a pound, the easier it is going to be to get someone to commit to a long term price guaranteed product. If one of the Chinese companies buying up large quantities of iron ore signs a deal with Adanac, the project will be dead easy to finance without diluting the shares.
It will be another month before Adanac get assays back, when I was there they had just finished the 1st hole, going down 1185 feet. When Placer Dome took over the project, they just assumed they would go with the pit design from Kerr. It called for a 500 foot deep pit. So Placer Dome drilled 500 feet and not an inch more. Every hole bottomed in mineralization. I can't tell you how stupid I think that is. It's typical big company stupidity. Drill holes which bottom in mineralization don't tell you anything about the dimensions of the system, all they do is define the short interval drilled. You have to drill into barren rock before you start to understand the limits of an ore body.
The first hole Adanac drilled was a twin of a 500' hole drilled by Placer. But Adanac drilled 1185 feet, about 140% longer than Placer's hole. There's an excellent chance there is more moly there than Placer figured. No one knows how much more metal there is in place but Larry Reaugh is at least smart enough to realize he needs a lot more deep holes. It may require moving the pit, but a mine with a 50 year life is a hell of a lot easier to finance than a mine with a 25 year life. Once you have paid your sunk costs in a mine, your profit goes way up.
This is not to say there are not issues. There
are issues. The town of Atlin, right on the eastern edge of Lake
Atlin, is tiny. 75 people in winter growing to 300 in summer.
Some of the people in Atlin would welcome a permanent mine, some wouldn't. The government of BC hasn't been mine friendly for years but even the bureaucrats have begun to come around. It's easier to permit a mine now than it would have been a few years ago.
Building a mine with its associated plant and equipment requires more power than Atlin now generates. There has been some talk of putting in a hydro-electric plant and putting the entire area on the BC power grid. That's an important cost issue.
I'd guess off the top of my head that there are maybe 10 nice moly projects at various stages. You will be reading a lot about moly over the next few months as well as uranium. Each is up about 200% in the last year. Price increases such as that tend to suck minerals out of the ground. Larry guesses, at this point, that $6 moly would make for a profitable mine. $16 moly makes for profits right out of the park. But everyone with a property with any moly is thinking the same thing. Demand is about 140,000 MT a year and this would add 5,000 MT a year, hardly enough to change price. But if ten projects move along, the first two or three will make a lot of money, the next two or three will become marginal and depending on what stage they are at when moly prices come down, may get moved to the back burner and the last two or three are wasting money. It's a horse race with a great pot and the first horse across the finish line collects.
Of all the moly projects I've read about, I think Adanac is the most advanced. It's been to feasibility twice and almost went into production twice when the payback wasn't nearly as good as Adanac's 100% ownership. I'd guess Adanac has a year's head start right now. The winter pre-feasibility study isn't brain surgery, all they have to do is feed the numbers into an already-existing spreadsheet. If they can keep their lead, they will soon have a mine. The pre-feasibility is primarily to bring the existing data up to 43-101 standards.
And since they have fairly solid numbers already, they can leap ahead of the pack on a permanent basis if they can lock up a customer who wants a long term commitment. You may believe that the management of all those 24/7 steel mills in China and Japan are pulling their hair out right now trying to come up with a dependable source of moly. Some metals literally are on the verge of running out such as copper and for all purposes, moly has run out and the price could double or triple from here easily.
Any base metals major who wants moly will be looking at Adanac very closely. So the stock has a giant potential yet is priced as if moly isn't economic. It is. It is indeed.
Adanac is an advertiser. We participated in a recent private placement and as such have a vested interest in the success of the company. I like the management, I like the project and I love Atlin lake. This article neither suggests buying or selling any stock. It's your money, do your own due diligence.
August 8, 2004